What is a Bear Put Spread?
A Bear Put Spread is a debit spread using Put options.
- You buy a higher strike Put (ATM or slightly ITM).
- You sell a lower strike Put (OTM).
This reduces the cost of buying a Put while capping both risk and reward.
🔹 Market View
- Expectation: Market to decline moderately.
- Best Use Case: Slightly bearish outlook.
🔹 Volatility View
- Works best in low IV (when Puts are cheaper to buy).
🔹 Example (Nifty @ 20,000)
- Buy 20,000 Put = â‚ą200
- Sell 19,600 Put = â‚ą80
👉 Net Debit = ₹120
🔹 Payoff Analysis
- Max Profit: Spread width – Net Debit = (400 – 120) = ₹280
- Max Loss: Net Debit = â‚ą120
- Breakeven: Higher Strike – Net Debit = 20,000 – 120 = 19,880
How Profit is Arrived At:
- If Nifty = 19,600: Long Put = ₹400, Short Put = 0 → Net = 400 – 120 = ₹280 profit.
- If Nifty > 20,000: Both expire worthless → Loss = ₹120.
